Greymouth liquidation bid seeks to extort settlement: judge

March 24 (BusinessDesk) – An attempt to have the
Court of Appeal order the liquidation of Greymouth Petroleum
was described by one of the three judges hearing the appeal
as a tactic to “extort” the best possible price in the
court-ordered sale of shares by minority shareholder John
Sturgess.

The appeal court hearings are the latest chapter
in a $40 million-plus stoush between Sturgess and related
interests who own 14 percent of Greymouth, and interests of
executive chairman Mark Dunphy and director Peter Masfen,
who together control 86 percent of the local oil and gas
producer.

Dunphy and Masfen dismissed Sturgess as chief
operating officer in February 2011 amid allegations
rehearsed in a High Court hearing last year of “repeatedly
failing to report appropriately, honestly and accurately to
the executive chairman or the board in relation to drilling
activities, issues and decisions” in 2010 and
2011.

Sturgess is seeking a liquidation order for
Greymouth from the Court of Appeal, with a condition that it
lie with the court for 30 days to allow the parties to
negotiate an exit price, following the High Court’s order
that Sturgess interests must sell their shares after finding
in favour of the majority shareholders’ complaints against
Sturgess.

Two of the three judges hearing what is likely
to be a three-day appeal made it clear that they found the
liquidation argument “unattractive” and attempts to
relitigate the High Court findings against Sturgess
questionable.

Justice Forrest Miller said it was
”inconceivable” that the court would “hand him
(Sturgess) the leverage to extort the price” that he
sought. “Why would the court exercise its discretion to
allow him to do that when Mr Sturgess was the
wrongdoer?”

The application for a 30-day negotiation
period was clearly intended to strengthen Sturgess’s
position, otherwise the application would be for an
immediate winding up.

“You are asking us to give them
(the Sturgess interests) a very large club to beat them (the
Dunphy/Masfen interests) with,” said Justice Forrest.
“That’s from my perspective unattractive.

However, he
agreed “the order to buy shares in this tightly held
company is arguable and that is a matter for this
court.”

Counsel for Sturgess, Felix Geiringer, agreed a
delayed liquidation order had “the ability to be a large
bargaining chip in Mr Sturgess’s pocket” but it was not
inappropriate to test whether there was entitlement to seek
such an order.

“The suggestion that that (liquidation)
is a mechanism of extortion, I don’t accept,” he said.
“If he is entitled to it, it’s not wrong for the court
to give the parties the opportunity in the light of that
finding to talk to one another.”

Justice Forrest
countered: “Why would it be fair and equitable to wind the
company up in the circumstances” when it was likely to
reduce value for all shareholders, including Sturgess.

Geiringer responded that a wind-up clause in the event of
disagreement was a key factor of the Greymouth
shareholders’ agreement. That agreement required unanimous
board decisions, with wind-up as a remedy if that process
failed. Sturgess was seeking to exercise that part of the
agreement, and it was not clear his position would be worse
in a liquidation than in selling his shares in the
court-ordered process.

“I don’t think this
is the sort of case where we should be taken through the
evidence line by line,” he said. “I see the case as
coming down, in the end, to issues of remedy because not all
the findings of the High Court are challenged by any
means.

“The distinction as I see it is between the
judge’s finding your client (Sturgess) should sell his
shares and, on the other, your argument that liquidation
should follow, qualified by your submission that the
liquidation order should lie in the court for 30 days,
pending negotiation.

“I think that’s going to be
difficult,” said Justice Randerson. “This court is
unlikely to find the 30 day negotiation tool as attractive.
There would have to be a wholesale overturning of the High
Court finding that your client was primarily responsible for
what happened.”

Dunphy and Masfen sat together in the
public gallery of the court, while Sturgess sat on the
opposite side.

Geiringer told the court that among actions
Sturgess objected to was Dunphy’s attempt to sell
Greymouth to Canadian methanol producer Methanex without
notifying Sturgess after the breakdown in their
relationship, while Sturgess remained a director of the
company.

The Wellington-based BusinessDesk team led by former Bloomberg Asian top editor Jonathan Underhill and Qantas Award-winning journalist and commentator Pattrick Smellie provides a daily news feed for a serious business audience.

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